In the spotlight: “Who is business?” Focus on the next generation.
People are tired of gender inequality – governments and organisations are responding with binding commitments to equal pay for men and women. But it is such a complex matter that it is hard to get past knee-jerk reactions to see and address the real issues. Equal-Salary certification provides a rigorous, credible and objective means of isolating the problem and quantifying the gender pay gap on a like-for-like basis. Taking the heat out of the debate can help build a solid foundation for finally addressing the roots of pay inequality.
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Johannes (Joop) Smits
Director, People and Organisation, PwC Geneva
The debate on fairness of pay really took off in the wake of 2008 as it became clear that the bonuses paid to top bankers were a major system flaw and one of the reasons leading to the financial crisis. Since then, the debate has evolved into a discussion of gender pay equality. While there is plenty of commitment in theory to addressing inequality, in practice the concrete measures designed to do so often remain vague. A survey of 70 countries has shown that only a handful of nations committed to tackling gender discrimination in their constitution are actually enforcing action.
Even in countries that have taken firm steps, there are inherent problems in the approach adopted. A good example is the UK, which has recently introduced the requirement that companies employing more than 250 people report details of the gap between the median and mean hourly rates paid to their male and female staff. A good start, you might think. But ‘mean’ and ‘median’ figures are problematic. The British press created a huge stir with headlines that a major airline was paying its female staff around 50% less on average than men. But even while broadcasting this sensational news, the media had to admit that median and mean figures did not show whether women were being paid the rate for the job, and that such large gaps tend to show up when firms have a lot of women in relatively poorly paid roles while the higher-paid jobs are dominated by men (in our example most pilots are men, while most flight attendants are women). The UK’s initiative is laudable and it does help to get the debate going, but the value of the figures companies are required to report is questionable because they do not enable the difference in like-for-like pay to be defined. They merely lead to louder outrage rather than clarifying the terms of the discussion.
There is clearly a need for facts to take the heat out of the debate. One well-established methodology is Equal-Salary, a certification approach developed in 2005 by social entrepreneur Véronique Goy Veenhuys in close collaboration with Professor Yves Flückiger, (and expert in labour economics, industrial organisation, and public finances) from the University of Geneva.
Equal-Salary certification involves defining like-for-like pay on the basis of a sophisticated statistical regression. By calculating the impact of many different factors on pay, the approach reveals inexplicable pay gaps – as opposed to the 50% pay gap described above obtained on the basis of simple means and medians, which can be largely explained by the predominance of women in lower-paid jobs at the airline. Equal-Salary acknowledges that ensuring women are paid the same for the equivalent job, and getting more women into top positions, are two separate issues. Trying to deal with them both at once without a clear definition of the problem is counter-productive.
Equal-Salary certification is designed to be the ‘ISO’ for equal pay. Like ISO, it is a private label. Nobody is forced to have it, but organisations seek certification voluntarily because it is a stamp of quality that proves that their claims to offer fair pay withstand rigorous, objective examination. And like ISO, Equal-Salary demonstrates that companies are committed to an ongoing process based on continuous improvement, understanding and effort.
Equal-Salary certification comprises two critical steps. The first is quantitative, involving a statistical analysis where the candidate company provides the Equal-Salary Foundation with employee data via a secure IT platform. Data is anonymised before analysis, and compensation data is destroyed after the statistical report has been transmitted.
If the pay difference determined on the basis of this analysis is within specific thresholds, the company can proceed to step two. If the candidate fails to meet these thresholds, it has around a year to remedy the shortfall before proceeding. Step two consists of a qualitative analysis. Here PwC provides independent assurance expertise to carry out an on-site review in line with international quality management standards. PwC’s Equal-Salary team takes a thorough look at the company’s policies related to gender pay, and the processes used to put these policies into practice. They examine documentation and talk to people at all levels within the organisation to find out more about management’s commitment to equal pay, how equal pay strategies are integrated into HR processes and policies, and how employees perceive their employer’s pay practices. In combination with the nuanced statistical analysis conducted in step one, this on-site review is particularly strong when it comes to identifying the bias that often creeps into people decisions, despite an organisation’s commitment to equality.
Organisations that pass PwC’s rigorous review are awarded the Equal-Salary Label, which they are entitled to use in their communications with employees, candidates and shareholders. But the process does not end there: during the three years for which their certification is valid, they must undergo two monitoring reviews to demonstrate their ongoing commitment to non-discriminatory pay.
Ideally, a methodology for defining and assessing the pay gap should help clarify the terms of the debate. It should be granular enough to identify the real issues and provide a solid but nuanced basis that allows companies to tackle the challenge of fair pay. To do this, the methodology has to be clearly defined, objective, credible, thorough, independent and ongoing.
Equal-Salary has gained recognition on all these counts. The Federal Office for Gender Equality has supported the development of Equal-Salary financially as part of the Gender Equality Act, and the methodology employed by the Equal-Salary Foundation is recognised by the European Commission. The sophisticated statistical regression is acknowledged as providing a nuanced and objective basis for judgements on whether a company’s actions match its stated policies on equal pay.
In addition to the quantitative analysis, certification also involves a qualitative review by an independent body, PwC, with expertise in both auditing and matters related to remuneration.
Another important factor is that certification is an ongoing process. Candidates that fail get a very clear idea of the non-conformities they need to address within their organisation, both major and minor. Even once certification has been granted, a company has to continue demonstrating commitment, an awareness of its processes, and an awareness of flaws in these processes.
There is a growing recognition that gender pay equality makes sense not just for individuals and the female workforce, but for the economy as a whole. A November 2017 report published by Citi claims that significant reductions in gender inequalities could add around 6% to GDP in the advanced economies over one or two decades. Reputable certification adds credibility to society’s efforts to achieve equal pay.
Individual companies also acknowledge the value of having their equal pay endeavours certified by a reputable body. They realise that independent endorsement of their commitment to fairness and non-discrimination, and their compliance with the law on equality, can give a powerful boost to their reputation and standing among stakeholders, both financial and otherwise. Equal-Salary certification is something that can be talked about in their communications and will get the company positive social media attention as an attractive employer or business partner, and a responsible corporate citizen.
In the ten years since its inception, the Equal-Salary label has gathered considerable momentum. A large number of private corporations and NGOs have already gained certification. Prominent examples are the World Economic Forum, which has had certification for years, and Philip Morris International, which is already certified for its HQ in Switzerland and its subsidiary in Japan: just two of the organisations that realise that comprehensive, rigorous equal pay certification is good for business.